New Orleans lawyer Michael Arata, business partners convicted in film tax credit scheme

New Orleans attorney and actor Michael Arata and his two partners in the multimillion-dollar renovation of a Marigny mansion were convicted by a jury Monday for defrauding a state tax credit program of $1.1 million.

Hollywood executive Peter Hoffman, his wife Susan and Arata were found guilty of conspiracy to wire fraud in connection with the rehab of a 155-year-old mansion at 807 Esplanade Avenue that they turned into a film post-production studio.

Peter Hoffman also was convicted on 21 counts of mail and wire fraud related to the deal.

Arata, who is married to New Orleans Deputy Mayor Emily Arata, was convicted on seven counts of wire fraud and four counts of making false statements to FBI agents about his involvement in the project.

Susan Hoffman was acquitted on all but the conspiracy charge and a single count of mail fraud.

Peter Hoffman faces a maximum sentence of 405 years in prison, prosecutors said. Arata and Susan Hoffman face maximum sentences of 185 years and 45 years, respectively. Maximum sentences, however, are rare for first-time offenders.

Jurors deliberated for about ten hours over two days, after hearing two weeks of trial testimony that painted starkly different portraits of the renovation project.

Prosecutors pointed to a series of "circular transactions" that bounced money among bank accounts for Hoffman's Seven Arts Film Entertainment and a series of shell companies, moves the partners submitted to their auditors as payouts to contractors and for equipment purchases.

The Louisiana Motion Picture Incentive Act was a program designed to encourage investment in the state's budding film production business, and spending on "infrastructure projects" like the studio conversion were eligible for tax credits equal to 40 percent of the money spent on the project.

But the definition of "spent" formed the central debate of the trial. Hoffman and Arata both took the witness stand, and testified that the loose state rules for the program when the project began in 2007 and 2008 allowed them to claim money had been "spent" on the project if they had binding commitments from investors and deals in place with contractors.

The juggling of loans, both from outside lenders and companies controlled by the Hoffmans, and suspicious invoices submitted for legal fees and developer fees raised the hackles of two sets of auditors, one of which quit out of frustration. Another auditor withdrew their audit as the project came under scrutiny from federal investigators.

Arata told jurors that he had dropped out of the deal in 2009 after getting wind that Seven Arts financial documents on the project had been doctored, testimony that mirrored statements he made to FBI agents investigating the case.

On the witness stand, both Arata and Hoffman defended the transactions as legal, if somewhat opaque, steps in financing multlimillion-dollar projects. All told, the project cost $12 million, Hoffman said.

Assistant U.S. Attorney Dall Kammer pointed out that the $5 million estimated value of the mansion and its contents was about 40 percent of the $12 million price tag Hoffman pegged as total cost for the project.

The project was approved for $1.13 million on tax credits in 2009 based on doctored financial records Hoffman and Arata turned over to auditors, who in turn submitted reports on the project to the state.

The studio opened in 2012, and has since been used by the crew that produced the critically acclaimed "True Detective" series for HBO, among other movie, TV and commercial projects.

The film tax credits are up for revision yet again in the current legislative session, as state officials weigh options for reining in incentive programs that have cost the state more than $200 million in the last year-- even as Louisiana has in recent years outpaced film mecca California in the number of film productions.